TransCanada an underdog, but has strong case against Washington

Slapping Washington with a lawsuit and a multi-billion dollar North American Free Trade Agreementclaim takes a certain level of bravado, but considering the long, arduousand expensive path TransCanada has travelled with the proposed Keystone XL pipeline, it's easy to see why it hasthe guts to do it.

The Calgary-based pipeline company does not want to walk away from Keystone XLempty-handed after seven years of frustration, billions of dollars spentand thousands of pages of filings.

Instead, it's asking for $15 billion US and permission to start construction on the cross-border pipeline.

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To that end,TransCanadahas launched two separate legal challenges against the U.S. government.

The first is a NAFTA claim, which was not unexpected, asthere have been musings by the pipeline company's CEO in recent years about taking such action.

The question was always whether it was more of a threat than a promise.

What they spent has now become tantamount to expropriation.CyndeeTodghamCherniak, international trade lawyer

Under NAFTA,governments have to treat foreign and domestic companies alike.Their regulations can'tdiscriminatebetween the treatmentof a foreign or domestic company.

It's called a Chapter 11 challenge, andTransCanada is the underdog right now, at least historically. To date, no company outside of America has been successful in a NAFTA Chapter 11 case against the U.S.

So, if you are keeping score: U.S.100 per cent,Investors0

Butthis could be the first victory for the other side.

The main argument by TransCanada is that it did not receive fair and equitable treatmentthroughout the review process for Keystone XL, which was ultimately rejected.

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"It basically says the U.S. has approved other pipelines, and so we are not being treated the same as these other guys who were approved," said Cyndee Todgham Cherniak, who practises international trade law, in an interview with CBC News.

The company spenta significant amount of money to purchase land and secure rights, while the approval process went on.

"What they spent has now become tantamount to expropriation," said Todgham Cherniak. "They are taking a significant financial hit."

While the Keystone XL process dragged on, other pipelines were constructed south of the border. Under NAFTA, every investor has to be treated the same, without discrimination.

"What TransCanada has raised in their notice, is that this file was highly politicized," said Lawrence Herman, an international trade lawyer with Herman & Associates in Toronto. "I think they've got a pretty strong case."

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The$15billion in damages in the NAFTA claim is apreliminary figure by TransCanada to recoup its investment and the lost future economic return for the project.

"They have the right to claim for compensation based on both sunk costs and future lost profits as a result of the decision," said Herman.

Direct challenge to Obama

TransCanada also filed a separate lawsuit,arguing that Obama exceeded his power by denying construction of Keystone XL.

The basis of the argument is that the U.S. Constitution gives Congress the power to regulate international commerce. The U.S. Congresspassed a bipartisan bill nearly a year ago to approve Keystone XL.

The company isn't looking for any damages in this case;it essentially wants to overturnthe denial of the permit and get started on construction of the pipeline.

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The question of presidential power to approve or deny the pipeline hadn't been challenged by TransCanada until now, but the company suggests that the presidential permits in the past have focused solely on border-related and operational concerns, not on issues ofdirty oil or climate change.

This challenge has some merit, according to Lawrence Smith, a partner with the law firm Bennett Jones. He is the firm's leading energy lawyer. Smith points out that he is not a U.S. constitutional lawyer, but that the executive decision seemed arbitrary.

"It is somewhat surprising that when it comes to pipelines, which we have many of crossing the border, that the president was able to insist on an almost ever-changing series of escalating requirements, substantive requirements that are not reflected in law."

A chill on U.S.-Canada relations?

Under the Chapter 11 provision in NAFTA, firms are allowed to sue another country without first getting the approval of their own country. SoTransCanada was able to launch the lawsuit against the U.S. withoutapproval from Ottawa. That may put a chill on the warming relationship between Prime Minister JustinTrudeau and Obama.

"TransCanada, by launching this case, is going to basically stop all dialogue between the two governments on pipelines and projects like this, and that's going to continue even after there's someone new in the White House," said Christopher Sands, a fellow with the Hudson Institute in Washington, D.C..

In March, the White House will holda state dinner for Trudeau, the firstfor a Canadian prime minister in 19 years.

"With Trudeau and Obama getting along well, they had put the KXL pipeline issue on the side for a while," said Sands.

"They could talk about other things, like North American energy strategy, butnow a lot of that is going to be held up with this case pending, and I think it's going to be frustrating to Washington, but also frustrating to Ottawa."

What now?

The road TransCanada is now travelling is just like the one behind it long and expensive.

A NAFTA claim won't be settled quickly and won't be cheap.

"It will take several years, there is no question about that," said Herman. "These are long-term cases. They are going to have to have lots of patience and deep pockets."

What's interesting to note amidthe legal action and trade claim is thatKeystone XL still isn't dead.

TransCanada can still reapply for approval to construct the project in the future. It's an option the company said it is considering.